Thursday, December 30, 2010

Little volatility

One of the least volatile day I remember, only 4 points swing and, as expected, on very low volume. Nobody wants to make a big move before the New Year. The Bollinger Bands are narrowing especially on QQQQ (Nasdaq 100) that also shows a neutral DMI in sharp contradiction with the other major indexes, including Nasdaq that shows a very bullish daily DMI. This is a good time to buy some "straddles" if you are interested in "options", you are both long and short at the same time (one put and one call) and in order to make a profit you need the underlying stock to make a big move. The beauty of a straddle is that it doesn't matter if your underlying stock moves sharply up or down. A good candidate is QQQQ, of course. Also F, IBM, EEM show little volatility according to Bollinger Bands and they qualify as good candidates for a straddle. After the New Year the market will probably go back to normal, at least in terms of volume.

In terms of individual stocks there are plenty of opportunities around but they are riskier that ETFs since huge moves could happen over night. FCEL, MBI, has caught my attention in the last few days, ICO looks like is trying to fill the gap. The way I am trading individual stocks is to find those with very strong momentum, join them for a few days then exit. This is very risky since you are buying stocks that have already advanced or plunged a lot.

Happy New Year!

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